The US/China trade war has stung a variety of riskier assets, including stocks in the world’s second-largest economy, but for investors mulling China rebound opportunities, it may pay to consider some of the country’s more compelling equities.
The VanEck Vectors ChinaAMC SME-ChiNext ETF (CNXT ) is one way of accomplishing that objective. CNXT, which is almost five years old, tracks the SME-ChiNext 100 Index. That index “tracks the performance of the 100 largest and most liquid China A-share stocks listed and trading on the Small and Medium Enterprise (“SME”) Board and the ChiNext Board of the Shenzhen Stock Exchange,” according to VanEck.
With more mainland Chinese stocks, also known as A-shares, poised to join major international equity benchmarks later this year, some index providers are considering upping exposure to ChiNext stocks.
“The FTSE Global Equity Index Series (GEIS) China A implementation opens up a range of China stocks to investors globally,” said FTSE Russell in a recent note. “One interesting detail about it is that ChiNext stocks will be included. We were the first international index provider to announce the inclusion of ChiNext stocks in global indexes and we opted for ChiNext inclusion at the outset as we believe they are an important component of what it means for international investors to access the China equity markets.”
Growth Opportunities in China
CNXT could prove advantageous to tactical investors considering China because of its exposure to growth stocks and lack of exposure to state-owned enterprises (SOEs). A mix of Chinese stimulus measures have been providing the fodder for economic growth, such as lower taxes, no corporate tax breaks, monetary policy adjustments, and more market access for foreign companies to set up shop. All in all, Wall Street is looking at the Chinese government’s latest efforts as a plus for its economy.
“As an important component of the China A Shares opportunity set, we’re adding ChiNext large, mid and small cap stocks to the FTSE GEIS and derived indexes,” according to FTSE Russell. “Our indicative data at the end of March 2019 suggests that a total of 141 ChiNext stocks are poised to join the FTSE Global All Cap Index, representing about $400B in total market cap, or $25B in net market cap (at a 25% inclusion factor).”
While ChiNext stocks are often perceived as smaller growth names, there are some large-cap stocks residing on that benchmark.
“A common misconception is that companies listed on the ChiNext Board are start-up companies and fledgling in nature,” said FTSE Russell. “If we take a closer look at ChiNext Board companies, this is easily proven untrue. As the ChiNext board has grown over the past decade, so, too, have the companies it comprises. Today, the ChiNext Board is home to many large and mid cap stocks, in addition to smaller firms. For example, in our March 2019 index review, ChiNext stock Wens Foodstuff Group joined the FTSE China A50 Index—a mega cap index composed of the 50 largest companies listed on the Shanghai and Shenzhen Stock Exchanges.”
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